Another remarkable first was the use of Desmodromic valves and fuel injection, based on previous experience collected with the engines of the Messerschmitt Bf 109 fighters. As the streamlined body was not situable for twistier tracks, causing a defeat at its second race at Silverstone, a proper open-wheel-version was introduced at the Nürburgring. Fangio, who had already won the first two GPs of 1954 with a Maserati, won this and the two following GPs, securing his 2nd World Championship.
In late October, at the 1954 Spanish Grand Prix, the low-mounted Mercedes air-intake was clogged with leaves. The race was lost, and the air-intake moved to the top of the hood.

The new 1954 Formula 1 rules allowed engines of 2.5 litres naturally aspirated or, alternatively, 0.75 litres supercharged. The 1939 Mercedes 2-stage supercharged 1.5 litre 64.0×58.0 mm V8 (1,493 cc/91.1 cu in) gave 278 bhp (207 kW) at 8,250 rpm with about 2.7 atm (270 kPa) pressure. Halving this would have only given 139 bhp (104 kW). The expected target range for competitive engines was 250 to 300 bhp (190 to 220 kW). Studies by Mercedes showed that 290 bhp (220 kW) at 10,000 rpm could be achieved from 0.75 litres with a supercharger pressure of 4.4 atm (450 kPa). 390 shp (290 kW) would have been developed with 100 hp (75 kW) being required to drive the supercharger. Fuel consumption would have been 2.3 times higher than an naturally aspirated engine developing the same power. Since 115 bhp/l (86 kW/l) at 9,000 rpm was being developed by naturally aspirated motorcycle racing engines, it was decided that a 2.5 litre engine was the correct choice. This was a significant change of philosophy, since all previous Mercedes-Benz Grand Prix engines since the 1920s had been supercharged.

The 2,496.87 cc (152.368 cu in) straight 8 (76.0×68.8 mm) gave 257 bhp (192 kW) at the 1954 French GP which was its first race. During 1955, this had increased to 290 bhp (220 kW) at 8,500 rpm. The 2,981.70 cc (181.954 cu in) sports car (78.0×78.0 mm) gave 310 bhp (230 kW) at 7,500 rpm and was a bored and stroked version of the F1 engine complete with desmodromic valves and fuel injection. Variable length inlet tracts were experimented with and four wheel drive considered. An eventual 340 bhp (250 kW) at 10,000 rpm was targeted for the 2.5 litre F1 motor.

After winning all three world championships it competed in, Mercedes withdrew from motorsport at the end of the 1955 season.